CCR is just the beginning, says Walgreens CEO

CHICAGO — Walgreens’ massive Customer Centric Retailing initiative is transforming the way the company’s stores are merchandised and designed as it rolls into an ever-larger proportion of its more than 7,600 stores across the United States. But it’s only the opening drive in a campaign to “reinvent the customer experience in our stores,” president and CEO Greg Wasson told shareholders Wednesday.

That effort to significantly upgrade customers’ shopping experience “began with CCR,” said Wasson, who dubbed it “a much-needed, low-cost refresh of the majority of our stores.” But the full impact of the transformation — which involves a tighter, faster-turning front-end product mix, improved departmental adjacencies, better signing and other changes — will go far beyond the initial improvements in store appeal, he noted.

“To date, we’ve converted or opened [more than] 2,100 stores to the CCR format, and a little [more than] 28% of the chain,” Wasson said. In those stores, he said, “we’re hitting on all four cylinders of our four-way win, which was to increase total sales, reduce our inventories, increase our store efficiencies … and, most importantly, to improve the customer experience. This time next year, we will have converted or opened approximately 5,500 [CCR] stores, which is about 73% of the chain,” Wasson added.

With that conversion well under way, “once we’ve moved beyond CCR, we have a lot of exciting opportunities we’ve been piloting and studying that we can now begin to move forward with,” Wasson said. For instance, he added, “We believe we have tremendous opportunity in the front end of our drug stores. We’re expanding our private-brand offering to meet the needs of the new consumer. We’re piloting a loyalty program in three markets across the country, and we also acquired a loyalty program from Duane Reade to help us … study and capture their learnings as we go forward.”

In addition, Wasson said, “We’re looking to offer a Duane Reade-like beauty department in many stores across our company — we’re testing those in several markets — and we’re expanding our fresh food offering.” That expansion began last summer when Walgreens rolled out several more stores with much larger selections of produce, fresh-prepared foods, dairy products and other groceries in parts of inner-city Chicago that have been called “food deserts” because they lack access to full supermarkets or other healthy-food options.

Chicago now hosts 10 Walgreens fresh-food stores, including at least one unit that reportedly has dedicated 40% of its retail area to food. “By leveraging the drug store locations we have across this country in food deserts, we can become the food oasis in those communities,” Wasson asserted. “We think there’s tremendous opportunity to do good business while we’re there.”

Walgreens, Wasson added, is “in our infancy with this.” But he projected that the company could expand the fresh food centers to 400 or more stores in the next several years.

Walgreens’ mission: To be nation’s top source for ‘health and daily living needs,’ leaders say

CHICAGO — Bolstered by a strong recent uptrend in sales and earnings and by clear signs that its massive realignment is beginning to bear real fruit, Walgreens’ top executives delivered an upbeat assessment of the company’s progress and its potential as a multichannel retail and healthcare powerhouse at the company’s annual shareholders’ meeting Wednesday.

In a celebratory gathering at Chicago’s Navy Pier auditorium, Walgreens’ leaders gave hundreds of largely supportive shareholders a glimpse of a company in the midst of a paradigm shift. The ultimate goal, according to chairman Alan McNally and president and CEO Greg Wasson, is to make Walgreens the nation’s top destination for accessible, community-based health services and everyday convenience products.

“Our vision is to be ‘My Walgreens’ to everyone in America — their first choice for health and daily living needs,” a confident Wasson told the crowd.

Walgreens’ leadership is convinced the company is on the right track. Two years into the transformation of its retail strategy and health mission, McNally said, Walgreens has “transitioned from a company intensely focused on maximizing the number of new-store openings, to a company intensely focused on making the 7,600 stores we already have more valuable, productive and relevant to customers and patients in satisfying more and more of their health and daily living needs.”

Wasson spoke to Walgreens shareholders for the third time as the company’s top manager and second-in-command. McNally, named chairman in the shakeup that launched the company’s massive strategic overhaul in the fall of 2008, praised Wasson for having “led one of the most important strategic and operational transformations in [the] company’s history," and for assembling “an exceptionally talented world-class leadership team” that blends “internal talent and externally developed expertise. Together with his leadership team, Greg has developed a clear, compelling growth strategy and is executing it with focus, discipline and intense commitment, leveraging the best store network in America, enhancing the customer experience and achieving major cost reduction and productivity gain,” McNally added.

Wasson, said Walgreens’ chairman, also has “fostered a culture of innovation and operating excellence.”

The result, McNally said, has been “double-digit growth in earnings per share in the last two quarters, record free cash flow of $2.7 billion in fiscal 2010 and a dividend increase of more than 27% last July.” Fundamentally, he added, “In the past 24 short months, the operations … have been substantially strengthened, and Walgreens has become a higher-performing company.”

Walgreens’ chairman also praised last year’s acquisition of the 257-store Duane Reade drug store operation in New York. The buyout “not only established Walgreens as a market leader in New York City, it has provided our company with great strengths in urban retailing and store design that are already influencing and enhancing the operations of Walgreens stores nationwide,” he said.

In a real sense, Walgreens has shifted much of its expansion firepower to timely, opportunistic acquisitions of strong regional chains to give it instant access to new or undeveloped markets — while throttling back on its once-torrid store-construction strategy. “Two years ago, we had 9% new-store growth; this fiscal year we came in around 4.2%, and we’re on track to hit the 2.5% to 3% for this fiscal year that we had targeted,” Wasson explained. Despite the fact that “we are slowing our new-store openings … we are still opening more drug stores than all our drug store competitors are opening combined today,” he told investors.

What’s more, Wasson said, “We’ve acquired more drug stores over the last two years than at any other time in our company’s history.” That includes Duane Reade, Dean’s Apothecary in Boston, Happy Harry’s in Delaware, Snyder’s in Minnesota, Drug Fair in New Jersey and Farmacias El Amal stores in Puerto Rico. “Combining the organic growth and the new store openings that we are still targeting with these key acquisitions, we are now No. 1 or No. 2 in 115 markets across the country,” he pointed out.

McNally said Walgreens’ market strengths remain “the best, most convenient store network in America, our trusted and iconic brand and our strong balance sheet and financial flexibility.” Together, he said, those strengths “serve as the bedrock for this transformation” to what company leaders said will be the nation’s most fully integrated and accessible multichannel provider of retail health and convenience shopping services.

Wasson said the company has “made substantial progress” on that transformation. “Two years ago, we did lay out our plan to win and our three core strategies to get more from our core business: To leverage the best community-based store network in America, to enhance the patient and customer experience across the entire enterprise and to achieve major cost reductions and productivity gains,” he told shareholders. “I can assure you that we are laser focused on those core strategies.”

One clear example of progress, Wasson told shareholders: “We completed our 36th consecutive year of record sales” despite a down economy, with $67.4 billion in revenue. “Only one other company in the S&P 500 can claim that,” Wasson pointed out. Walgreens’ net income for fiscal 2010 also rose to nearly $2.1 billion, he added.

“All in all, this was a year of substantial progress in a continuing challenging economic climate,” Wasson said. For fiscal 2011, he noted, “we’re off to a good start” with a “solid first quarter” and December selling season. “We are confident we do have the strategies in place to deliver value,” Wasson asserted.

Among the company’s highlights over the past year, according to Walgreens’ chief executive:

The opening of Store No. 7,000 in Coney Island;

The purchase of Duane Reade, according the Wasson, “the largest acquisition in our company’s history, giving us a leading position in the New York City market”;

Filling a record 778 million prescriptions, up 7.5% over the previous year. “We now fill nearly 1-in-5 of all U.S. retail prescriptions,” Wasson noted; and

A massive flu shot program, with roughly 7 million immunizations provided, making Walgreens the nation’s top provider of flu shots outside the U.S. government.

“We feel good with these accomplishments, but we have a lot more to be done,” Wasson added.

Walgreens’ “center of gravity,” he said, remains its 7,655 drug stores “located in communities across the country in the best locations.” What’s more, he said, “with 63% of Americans living within 3 miles of our drug stores, we are closer to consumers than anyone else in America.”

Additionally, Wasson said, “We are on the front lines of health care, with [more than] 70,000 healthcare service providers and growing. We have [more than] 8,000 points of care across the country.” Armed with those resources, the CEO said, Walgreens is building “the most complete national network of integrated healthcare providers and locations across the country.”

That growth, he added, is occurring “in a fast-changing environment” for consumers increasingly concerned with getting the most value for their dollar, and “in a rapidly changing healthcare industry. … With the passage of healthcare reform last year, we now have 32 million more Americans who will gain access to health care, we have an aging population and we have a growing incidence of complex and chronic disease.”

All those forces are leading to what Wasson calls “the convergence of two great industries, retail and health care. And frankly, that trend is good for us, because we are located right at the intersection of retail and health care. That’s why we’re evolving from a retail drug store, to a retail health and daily living store,” he said.

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